Vanguard Transition is too much trouble

[Paulz]

Just a word of warning. I did the brokerage conversion with Vanguard and then a year later tried to rollover a small portion of my IRA to Fidelity. Since the Vanguard was a brokerage account, Fidelity would not allow a rollover to another IRA and claimed I had to open a brokerage account IRA with them. I thought it was a fluke, but received the same response from Schwab.

I tried numerous times to open new IRA at other places and do a rollover, with no luck. I fixed my problem by rolling the entire amount into my 401k and will move it back to another fund family after retirement.

I don't know what the brokerage account does for me in Vanguard, but I know what a PITA it is if you want to move it out from Vanguard!

 

[meleana]

Pardon my ignorance but what exactly is this "transition" you are all talking about?

 

[MRG]

Pardon my ignorance but what exactly is this "transition" you are all talking about?

From the old mutual fund only system to a brokerage system. It's been occurring since ~ 2016.

 

[harllee]

OP here, Vanguard says it is doing away with the old mutual fund system and wants everyone to "transition" to brokerage accounts. As far as I can tell it is being done for cost savings.

 

[easysurfer]

OP here, Vanguard says it is doing away with the old mutual fund system and wants everyone to "transition" to brokerage accounts. As far as I can tell it is being done for cost savings.

"Wants" or "requires"?

I'll linger around with the old mutual fund system until get ushered out. Not purposely being stubborn, but I have not need for a brokerage account. Happy with just mutual funds.

The transition for me is like someone saying I need an SUV when I'm totally happy with a subcompact car.

 

[Whisper66]

Like some others here, I am surprised this seems like a big deal to folks. I didn't do the transition for quite awhile. Talked about it with my rep and never got any pressure to do it. I waited becuase I just honestly didn't feel like making any changes. Rep said the change was being made to help keep costs low. Since low cost is the main reason I am with VG that was fine with me. Eventually I decided to make the change to simplify my own records since it combines reports on brokerage accounts and nonbrokerage accounts. The change was so simple, I can't even remember anything about it other than making a phone call and it being done. This has been similar to all my experience so far with Vanguard. If it's not obvious how to do it online, I work it through a phone call with my rep. So far, we've moved three accounts from other companies to Vanguard. VG has been instrumental in making those moves and working any issues with the other companies.

 

[reawilliams]

I'm no Vanguard fan, but don't make decisions based on incorrect assumptions. SIPC doesn't cover your Vanguard mutual fund account. It only covers securities held in a brokerage account. Also, Vanguard has supplemental SIPC insurance, as noted on Vanguard's website:

https://investor.vanguard.com/investing/account-protection

Many brokerage firms purchase supplemental insurance.

Some basic SIPC info:

https://www.sipc.org/for-investors/what-sipc-protects

Correct! If I convert my IRA to a brokerage account, then only 500K will be protected by SIPC insurance. The remainder will be woefully unprotected by VG's Supplemental. At least as a mutual fund account, the assets are held by a bank custodian.

 

[ejman]

Correct! If I convert my IRA to a brokerage account, then only 500K will be protected by SIPC insurance. The remainder will be woefully unprotected by VG's Supplemental. At least as a mutual fund account, the assets are held by a bank custodian.

The following is from Vanguard's description of the supplemental insurance



"To offer greater protection and security, Vanguard Marketing Corporation has secured additional coverage from Syndicates at Lloyd's of London for our brokerage clients. This additional insurance has the same customer eligibility requirements as SIPC. This coverage has an aggregate limit of $250 million for all claims of securities and cash and incorporates a per client coverage limit of $49.5 million for securities and $1.9 million for cash. This additional policy, provided by the Lloyd's of London Syndicates, is subject to its own terms and conditions. Coverage provided by SIPC and Lloyd's of London Syndicates does not protect against loss of market value of securities"


Could you explain why this is inadequate?

 

[gwraigty]

Just a word of warning. I did the brokerage conversion with Vanguard and then a year later tried to rollover a small portion of my IRA to Fidelity. Since the Vanguard was a brokerage account, Fidelity would not allow a rollover to another IRA and claimed I had to open a brokerage account IRA with them. I thought it was a fluke, but received the same response from Schwab.

I tried numerous times to open new IRA at other places and do a rollover, with no luck. I fixed my problem by rolling the entire amount into my 401k and will move it back to another fund family after retirement.

I don't know what the brokerage account does for me in Vanguard, but I know what a PITA it is if you want to move it out from Vanguard!

So you had a rollover mutual fund IRA with Vanguard that you converted to a rollover brokerage IRA, that you then rolled back into a 401k. You should have been able to open up the proper IRA type at Fidelity/Schwab/any brokerage of your choosing, fill out the proper transfer forms, and then the assets from the rollover brokerage IRA at Vanguard would have been transferred to the new brokerage IRA. Otherwise, that's like saying that once you rollover employer plan assets to a firm, you're stuck with that firm for life. It's just not true.

https://finance.zacks.com/transfer-ira-one-brokerage-another-3642.html

We transferred 2 Roth IRAs (not rollovers) and a taxable joint brokerage account from one firm to another with no trouble. These things are done all the time. I don't know why transferring a rollover IRA to another firm would be any different.

Fidelity and Schwab each have their own branded mutual funds, but they don't offer the old-style mutual fund accounts, AFAIK.

https://www.thebalance.com/brokerage-accounts-vs-mutual-funds-differences-and-similarities-4589284

 

[reawilliams]

The following is from Vanguard's description of the supplemental insurance



"To offer greater protection and security, Vanguard Marketing Corporation has secured additional coverage from Syndicates at Lloyd's of London for our brokerage clients. This additional insurance has the same customer eligibility requirements as SIPC. This coverage has an aggregate limit of $250 million for all claims of securities and cash and incorporates a per client coverage limit of $49.5 million for securities and $1.9 million for cash. This additional policy, provided by the Lloyd's of London Syndicates, is subject to its own terms and conditions. Coverage provided by SIPC and Lloyd's of London Syndicates does not protect against loss of market value of securities"


Could you explain why this is inadequate?

VG has over $5 trillion managed assets but only $250 million to protect what exceeds SIPC limits. I don't know what that amount is, but it doesn't seem enough to me.

 

[steveark]

They moved me over the phone, no forms at all. I think it was a service provided by my account representative because most of my 7 figure account is under their managed accounts program.

 

[gwraigty]

Correct! If I convert my IRA to a brokerage account, then only 500K will be protected by SIPC insurance. The remainder will be woefully unprotected by VG's Supplemental. At least as a mutual fund account, the assets are held by a bank custodian.

Strange that you consider over $49M woefully unprotected. Client assets are required to be kept separate from brokerage assets. Brokerages are subject to intense regulations, regular audits, etc. A brokerage account is no more or less safe than a bank account. Many, many people have brokerage accounts, even if they only want to hold mutual funds. If, as others say, Vanguard will eventually force this transition, the choice will be made for you and you'll find that there's not anything to be scared of at all.

The following is from Vanguard's description of the supplemental insurance



"To offer greater protection and security, Vanguard Marketing Corporation has secured additional coverage from Syndicates at Lloyd's of London for our brokerage clients. This additional insurance has the same customer eligibility requirements as SIPC. This coverage has an aggregate limit of $250 million for all claims of securities and cash and incorporates a per client coverage limit of $49.5 million for securities and $1.9 million for cash. This additional policy, provided by the Lloyd's of London Syndicates, is subject to its own terms and conditions. Coverage provided by SIPC and Lloyd's of London Syndicates does not protect against loss of market value of securities"


Could you explain why this is inadequate?

+1

 

[gwraigty]

VG has over $5 trillion managed assets but only $250 million to protect what exceeds SIPC limits. I don't know what that amount is, but it doesn't seem enough to me.

This isn't unique to Vanguard. Schwab has an aggregate of $600 million. Fidelity has an aggregate of $1 billion. If you believe that Vanguard employees are going to run away with all of the assets of Vanguard's entire client base, then you shouldn't have any money with them. Such a scenario is highly unlikely.

You seem confused. Above, you say you don't know what the SIPC limit is, yet you posted the SIPC 500K limit in your post #70. Per my link in post #72, 500K is the SIPC limit at all brokerage firms. You won't get any better standard SIPC coverage anywhere else. You may get better supplemental coverage at other firms.

 

[reawilliams]

Not confused, but probably unclear. The amount that VG's $250 million has to cover in aggregate once SIPC pays off IMO would be insufficient given VG manages $5 trillion. I may be paranoid, but for me it is better to split my IRAs between two houses to get 2 x $500k SIPC insurance. Thank you for your advice.

 

[MRG]

OP here, Vanguard says it is doing away with the old mutual fund system and wants everyone to "transition" to brokerage accounts. As far as I can tell it is being done for cost savings.

++

That mutual fund system was pretty state of the art in the 1980s! Vanguard made good use of the dollars they invested in the system.

Today technology has moved on from COBOL. I lived the agony of trying to recruit that skill in this century, its not getting better. Schools are not teaching COBOL anymore, developers don't want to learn or program in it. Folks who had it, are posting here.

I won't subject myself to having my assets on system that doesn't have the greatest technology staff. Perhaps I am jaded having spent a lot time in customer's sites that couldn't respond to their customer needs, keep pace with the latest regulatory changes; heck sometimes they couldn't keep their legacy system(s) up! When stuff hits the fan I want my assets having the attention of the current generation of support and developers.

 

[pb4uski]

Correct! If I convert my IRA to a brokerage account, then only 500K will be protected by SIPC insurance. The remainder will be woefully unprotected by VG's Supplemental. At least as a mutual fund account, the assets are held by a bank custodian.

You are woefully misinformed.

Either way, the asset you own are mutual fund shares... let's say 6,550 shares of VTSAX worth ~$500k for discussion purposes.

If you have a mutual fund account, then the fund administrator has an account in your name with 6,550 shares of VTSAX and there is no SPIC insurance on your account with the fund administrator.

If you have a brokerage account, then the VBS has an account in your name with 6,550 shares of VTSAX and that account is covered by SIPC insurance against the loss of cash or securities as well as VG's supplemental insurance.

There is no bank custodian involved.... I'm not sure why you think a bank custodian is involved.

 

[foxfirev5]

They moved me over the phone, no forms at all. I think it was a service provided by my account representative because most of my 7 figure account is under their managed accounts program.

Actually DW and I, actually just me, switched over our retirement IRA's and Roths in just a few minutes online. The includes giving each other limited transaction authority. If it would have involved a phone call I wouldn't have bothered. The only time I've ever had problems with VG were when I relied on a live human being to address my issue,

 

[MRG]

You are woefully misinformed.

Either way, the asset you own are mutual fund shares... let's say 6,550 shares of VTSAX worth ~$500k for discussion purposes.

If you have a mutual fund account, then the fund administrator has an account in your name with 6,550 shares of VTSAX and there is no SPIC insurance on your account with the fund administrator.

If you have a brokerage account, then the VBS has an account in your name with 6,550 shares of VTSAX and that account is covered by SIPC insurance against the loss of cash or securities as well as VG's supplemental insurance.

There is no bank custodian involved.... I'm not sure why you think a bank custodian is involved.

Ding ding ding.

 

[pb4uski]

Not confused, but probably unclear. The amount that VG's $250 million has to cover in aggregate once SIPC pays off IMO would be insufficient given VG manages $5 trillion. I may be paranoid, but for me it is better to split my IRAs between two houses to get 2 x $500k SIPC insurance. Thank you for your advice.

You're not paranoid, just misinformed.

You do realize that the SIPC insurance only covers loss of cash and securities and has nothing to do with the value of the securites, right?... IOW, if you have 6,550 shares of VTSAX and there is some sort of loss then the insurance will restore your 6,550 shares of VTSAX... but if the NAV is now $1 and was once $76 then that is your problem. Or if there is some fraud that causes the value of a security that you own to decline then that is your problem.

IOW, the insurance only really covers a limited scope of losses. That is why the $250 million is probably sufficient even though Vanguard manages $5 trillion. IOW, you're barking up the wrong tree.

https://www.sipc.org/for-investors/what-sipc-protects

SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. Most customers of failed brokerage firms are protected when assets are missing from customer accounts. There is no requirement that a customer reside in or be a citizen of the United States. A non-U.S. citizen with an account at a brokerage firm that is a member of SIPC is treated the same as a resident or citizen of the United States with an account at a SIPC member brokerage firm.

SIPC protection is limited. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins.

SIPC does not protect against the decline in value of your securities. SIPC does not protect individuals who are sold worthless stocks and other securities. SIPC does not protect claims against a broker for bad investment advice, or for recommending inappropriate investments. ....

(emphasis added).

 

[teejayevans]

Today technology has moved on from COBOL. I lived the agony of trying to recruit that skill in this century, its not getting better. Schools are not teaching COBOL anymore, developers don't want to learn or program in it. Folks who had it, are posting here.

I won't subject myself to having my assets on system that doesn't have the greatest technology staff. Perhaps I am jaded having spent a lot time in customer's sites that couldn't respond to their customer needs, keep pace with the latest regulatory changes; heck sometimes they couldn't keep their legacy system(s) up! When stuff hits the fan I want my assets having the attention of the current generation of support and developers.

But I’ll bet there isn’t any hackers who know COBOL, which means no viruses either.

 

[harllee]

OP here, I understand the need for the Vanguard transition from the old platform to the new one. The problem I have is that the transition was not an easy one. It involved at least a couple of hours of my time (and even for for DH as it turn out) and several contacts with my Advisor to get it done. These are the specific problems that I and DH had with the transition:

1. I got an email asking me to transition (the email said I had to transition, that the old platform was going away). I went on the website, searched, could not find a way to transition. I contacted my advisor, he said he did the paperwork for me, that I should find it under new accounts, I looked there could not find it. I finally decided to unblock pop ups on my computer, after doing that I finally found the link. Why would the link be part of a pop up?

2. After finding the link I completed it. After hitting submit a message pops up telling me my submission failed. I contacted my Advisor, he looked into it and found the transition had worked after all.

3. My DH and I both have large traditional IRAs at Vanguard and we have named each other full agents (we are both POAs for each other in the event of incapacity but we were told that Vanguard wants you to use their agency form and often will not accept a POA). I was told by my Advisor that the Full Agency forms will not carry over to the new brokerage account, the forms have to be redone. For some reason my agency to my DH carried over to my new brokerage account but it did not for DH's new brokerage account. So DH had to complete a new full agency form naming me as his agent. The form is online but does not work well. After several attempts DH got the form completed. The form requires a notary and 2 witnesses. He went to our local bank, they had a notary but no additional people available as the 2 witnesses. Now what does he do? He might have to go to our lawyer's office to get it done. I hope he does not get charged a fee.

I have complained about all this to higher ups at Vanguard. They messaged me an apology and said they are working on the process to make it smoother.

As I said when I started this thread I have been with Vanguard 27 years, for the most part my relationship with them has been excellent, but this transition was too much trouble and took too much time on my part.

 

[RetiredAt55.5]

++

That mutual fund system was pretty state of the art in the 1980s! Vanguard made good use of the dollars they invested in the system.

Today technology has moved on from COBOL. I lived the agony of trying to recruit that skill in this century, its not getting better. Schools are not teaching COBOL anymore, developers don't want to learn or program in it. Folks who had it, are posting here.

I won't subject myself to having my assets on system that doesn't have the greatest technology staff. Perhaps I am jaded having spent a lot time in customer's sites that couldn't respond to their customer needs, keep pace with the latest regulatory changes; heck sometimes they couldn't keep their legacy system(s) up! When stuff hits the fan I want my assets having the attention of the current generation of support and developers.

I have to correct this, COBOL is still being used for BOTH the old and new investment accounts. The new "technology" is just a different version of code and database tables, etc. The same COBOL programmers are maintaining both versions of the code.

Of course, there is also a lot of code supporting both account types that is "newer" technologies, like Java.

The reality is that as the number of clients with the legacy accounts dwindles, the old code will get less attention. So bug fixes will take longer, and things may break.

 

[NinjaPigeon]

I just did the transition. Unlike most of you, I'm a small fish, with a very meager Roth IRA to convert. I found the transition pretty obnoxious, but mainly because they are now asking about Income, Net Worth, and Employer.

I lied on the first two, but if you say you are employed, and then type in a name in the Employer field, it then tries to match that to an actual company! They don't let it just stay a free-form field. I talked to a rep, who says this is because of regulation. I looked for some more info (that Vanguard didn't have in the transition documentation) and someone suggested this is due to SEC Rule 17a-3(17). Not sure if this is true or not.

In the end, I just told them I was unemployed and had a 20k net worth just to get through the transition.

 

[UpAnchor]

I found the transition pretty obnoxious, but mainly because they are now asking about Income, Net Worth, and Employer.

I lied on the first two, but if you say you are employed, and then type in a name in the Employer field, it then tries to match that to an actual company! They don't let it just stay a free-form field. I talked to a rep, who says this is because of regulation. I looked for some more info (that Vanguard didn't have in the transition documentation) and someone suggested this is due to SEC Rule 17a-3(17). Not sure if this is true or not.

Hearing things like this just keeps me wondering what they’d do if one drags their feet until Vanguard makes the transition on their end. Have trouble believing they’d say at that point, “OK, due to SEC regs you’ll need to answer a few questions or you’re outta here!”

Having always been of the curious sort, I’m tempted to just find out.

 

[pb4uski]

^^^^ I have done a couple transitions from mutual fund to brokerage and have never been asked any such questions. Also, each transition has been quick and easy.